China Recovers Iron Ore on the High

‚ China's industrial industry has been hit hard by the country's restrictions and lockdowns this year. ‚ Chinese steel mills are increasing production now that the country is beginning to open up its economy. ‚ Iron ore prices are rising, but some analysts say it's merely a dead cat bounce.

deSpiTe The firST SiGnS of a proSpecTive manufacTurinG revival, China's steel sector is still on the verge of collapse. Last Monday, though, benchmark iron ore prices in the country rose by a surprise 7%. This is the highest daily gain in over two months. Is this an indication that we should be more optimistic, or is it just a dead cat bounce!

China's Slow Return to Recovery

Due to a new COVID-19 epidemic, Chinese manufacturing activity has been on the decline in the first half of 2022. However, the market has exhibited indications of revival since mid-May, particularly in Shanghai, the country's economic capital. Steel demand, however, is expected to stay low until manufacturing production returns to normal in June, according to experts.

China's manufacturing production index for steel consumption declined by 28 points from 2021 and 16 points in 2020, according to S&P Global Commodity Insights. These aren't exactly encouraging data, and despite the stimulus package, economists are concerned about the pace of recovery.

India Tariffs are being Fought Hard

The 7% increase in iron ore futures indicated earlier is perplexing. To begin with, it follows India's decision to raise export tariffs on several commodities to reduce inflationary pressures. The country raised tariffs on iron ore and steel intermediates in particular.

This includes increasing the taxes on new iron ores and concentrates from 30% to 50%. Pellet tariffs, on the other hand, increased from zero to 45 percent. Tariffs on coking coal and coke were eliminated entirely, according to research.

The most actively traded iron ore futures on the Dalian Commodity Exchange (for September delivery) were up 4.4 percent in the first week of June, trading at $129.18 (864 yuan) per tonne.

This came after a 6.9% increase, which was the largest since May 6. According to some experts, India's decision may not have as great of an impact on China's iron

ore inventories as previously assumed. After all, in 2021, it only accounted for approximately 3% of China's overall imports. The same can be said for this year's first four months. Due to rising demand in India and declining iron ore prices, Chain's buy rate from the subcontinent has remained low.

Despite this, China's iron ore prices are rising.

Iron ore prices are expected to rise again, according to recent reports. They mentioned the Chinese government's surprisingly large drop in the benchmark interest rate for mortgages as an example. Indeed, the stock market reacted rapidly to the news.

On May 20, spot 62 percent iron ore for delivery to north China was up to $135.90 a tonne, according to a report. That's a 5.7 percent gain from the day before and the best close since May 6. The Dalian Commodity Exchange's domestic iron ore futures were also higher. On May 20, they increased by a far more moderate 3.4 percent to $123.62 (827 yuan) per tonne.

On May 20, China cut the five-year loan prime rate by 15 basis points to 4.45 percent. This was the greatest drop since the country's interest rate structure was overhauled in 2019. Analysts believe that this new step is primarily intended to support the property and construction industries.

These industries account for nearly a quarter of the country's GDP. In addition, Chinese Premier Li Keqiang stated that Beijing would accelerate policy changes to restore "normal development" to the world's second-largest economy.

Iron ore prices are expected to rise, according to some analysts. After all, such policies have clear repercussions for the demand for iron ore and steel. Furthermore, preliminary indications suggest that China was already on its way to raising steel output following the lifting of some COVID-19 restrictions and the phasing down of winter pollution curbs.

Overall, output increased 5.1 percent from the previous month to 92.78 million tonnes in April. It's worth noting, though, that this was 5.2 percent lower than April 2021's figures. If we truly want to understand where Chinese iron ore and steel prices are headed, we'll have to wait until June.

China Making Supply-Side Moves

Meanwhile, it was claimed that the Cameroonian government had agreed to a $676 million deal with Sinosteel Corporation Limited to harvest highgrade iron ore (420 billion CFA francs). It's part of that country's effort to locate new supplies of the steel-making component.

Sinosteel Cam S.A., a Cameroonian subsidiary of state-owned Chinese mining giant Sinosteel, will develop the Lobe iron ore mine under the terms of the 20-year mining deal.

It's part of China's ongoing push to diversify its ore supply outside Australia and Brazil, with whom it is currently at odds.

The agreement would result in the production and shipment of 4 million tonnes of ore with a 60% iron content. Higher-grade iron ore would also help China's steel-making process reduce carbon emissions.

China's manufacturing production index for steel consumption declined by 28 points from 2021 and 16 points in 2020, according to S&P Global Commodity Insights.